What To Do If You Don't Earn Enough Money To Buy A House

Posted on: 9 October 2018

Experts say mortgage payments should account for no more than 25 to 35 percent of your income. Unfortunately, such a restriction keeps many low-income folks from buying homes in their neighborhoods. If the money you earn each month doesn't quite align with the price of homes where you want to live, here are a couple of things you can try.

Look for Loans That Use Alternative Calculation Methods

In the mortgage industry, using the debt-to-income model is the gold standard. Thus, if your debts exceed the maximum percentage allowed by most banks, you won't be approved for a loan.

However, there are some lenders who use alternate methods to calculate whether you can afford your mortgage payments. VA loans use residual income to qualify buyers, for instance. Essentially, the agency looks at how much money the applicant will have after paying the mortgage and other bills. If it meets the minimum level for the loan amount, the person will be approved.

Although the type of income model banks use isn't something typically discussed in casual everyday conversation, lenders will usually freely share that information if you ask. Shop around for lenders that use alternative methods that may make your tiny paycheck look big.

Increase Your Credit to a Top Tier Level

Lenders want to know if applicants will pay their mortgages on time every month, and income really isn't a good predictor of this metric. There are people who made millions of dollars every year and still ended up in bankruptcy court and others who barely scraped by on minimum wage who never miss a payment every month. Therefore, it shouldn't be surprising that banks put a lot of weight on credit scores, so much so that it's possible to still get approved for a mortgage even with low income.

The minimum credit score for a conventional loan is 620. However, the higher your score, the less important your income will be. Shoot for the mid to high 700s (over 740 at least). This is the range where you can qualify for the lowest mortgage rates and premium discounts, and lenders are more willing to overlook income challenges to approve your loan anyway.

Be aware, though; you may still have to put up a hefty down payment on the home, so be prepared to pay anywhere from 5 to 20 percent of the home's sale price.

For assistance with qualifying for a mortgage when you have limited income, contact a real estate agent or First Time Home Buyer Services.